FURTHER REFORMS Since 2002, jurisdictions across Australia have taken account of their individual circumstances and made alterations to their legislative regimes additional to the comprehensive programme of tort law reform described in the previous chapter. This chapter notes, where appropriate, further legislative reforms by the Commonwealth and each State or Territory jurisdiction. COMMONWEALTH PRUDENTIAL REFORM In Australia, the Insurance Act 1973 established prudential regulation of the general insurance industry. The Act sets out standards that authorised general insurers must meet. It imposes strict entry requirements and provides enforcement powers for the regulator. Prudential supervision promotes the stability of financial institutions and the financial system. It encourages and promotes prudent behaviour in financial institutions, focussing on resource adequacy and the quality of an institution s systems for identifying, measuring and managing the various risks to its business. Proactive prudential supervision also helps prevent problems in one institution from spreading more widely through the financial system. This level of prudential certainty is essential for Australian consumers. Insurance cover is of little value, regardless of the price paid, if the insurer lacks sufficient resources to pay claims. Over time, the prudential framework for general insurance established in 1973 was increasingly seen as being blunt and unresponsive in the face of significant market and regulatory developments that transformed the financial sector. Following the collapse of HIH Insurance Limited, the Australian Government significantly enhanced the prudential regime for general insurance with the General Insurance Reform Act 2001 and subsequent reforms. Most notably, the general insurance reforms introduced higher risk-based capital requirements for authorised general insurers and the power for the Australian Prudential Regulation Authority (APRA) to make prudential standards governing key aspects of the operation of general insurers. The subsequent reforms primarily concern corporate governance, fit and proper requirements, risk and financial management, outsourcing and prudential supervision of corporate groups involving authorised general insurers. Page 47
New prudential standards on fit and proper requirements, risk and financial management and corporate governance arrangements came into effect on 1 October 2006. New prudential standards on outsourcing arrangements will commence on 1 April 2007. APRA is also currently consulting with industry on proposals concerning the prudential supervision of corporate groups involving authorised general insurers. Collectively, these reforms have strengthened the safety and financial soundness requirements for general insurers significantly, through a more risk-based prudential regime that is consistent with international best practice. The reforms have helped protect policyholders interests and enhanced public confidence in the insurance industry. The insurance industry widely praised the reforms implemented through the General Insurance Reform Act 2001 as having significantly enhanced the safety of, and helped restore public confidence in, the general insurance industry. Prudential standards introduced or expanded by APRA were developed in consultation with the industry. Coinciding with the implementation of these reforms, the general insurance industry has adopted a more disciplined approach to underwriting. These changes, combined with well performing investment markets and a relatively benign claims environment, have led to the Australian general insurance industry performing very strongly over the last three years. Net after tax profits for the years ending 31 December 2005 and 31 December 2004 were $5.3 billion and $4.9 billion respectively, compared with an after-tax profit of $861 million in 2001. Insurers have also strengthened reserves. The capital position of the general insurance industry has strengthened by at least 50 per cent since the 2002 reforms. At December 2005, the absolute level of capital held by the industry was more than twice the minimum required by APRA. MEDICAL INDEMNITY After a long period of relatively low premiums, medical defence organisations significantly increased the cost of medical indemnity insurance over a relatively short period, in response to deteriorating claims performance. Between 1995 and 2005, average medical indemnity premiums increased by 221 per cent (averaging 13 per cent Page 48
per annum), with the largest average premium increase of approximately 50 per cent in 2002. 1 Medical defence organisations also began to move away from the principle of mutuality (all members paying the same premium) to charging higher premiums to members with a higher risk. Premiums therefore increased at different rates for different groups of doctors. Following the provisional liquidation of United Medical Protection in April 2002, the Australian Government announced a medical indemnity assistance package on 23 October 2002 and refinements to it on 17 December 2003. This package allowed only insurers subject to prudential supervision by the Australian Prudential Regulation Authority to indemnify health care professionals and required them to offer doctors a minimum level of cover and cover for past incidents. Other elements of the Government s medical indemnity package include: the premium support scheme for doctors, which helps meet the costs of premiums greater than 7.5 per cent of gross private medical income; the high cost claims scheme, which meets half of the cost of a payout over $300,000, up to the limit of the doctor s cover; the exceptional claims scheme, which protects doctors against personal liability for claims greater than $20 million; the run-off cover scheme for claims against retired doctors; and the incurred-but-not-reported indemnity scheme and the United Medical Protection support payment scheme. A key element of the medical indemnity assistance package was direct financial support for groups of doctors facing higher premiums due to the higher risks of their specialty, previously called the medical indemnity subsidy scheme but now referred to as the premium support scheme. High-risk groups included obstetricians, neurosurgeons and general practitioners performing procedures. In late 2005, the Government convened a second medical indemnity policy review panel, chaired by the Minister for Health and Ageing and the Minister for Revenue and Assistant Treasurer, to review the effectiveness of the Government s package of medical indemnity measures and developments since December 2003. The panel is to report later this year or early in 2007. 1 Medical Indemnity Industry Association of Australia Medical indemnity report: an analysis of premium and claim trends in Australia from 1995 to 2005 (21 August 2006) 5 <http://www.miiaa.com.au/reports.php> at 23 November 2006. Prepared by Insurance Statistics Australia Limited. Page 49
AUSTRALIAN CAPITAL TERRITORY There have not been any associated developments in the Australian Capital Territory. This is consistent with the fact that the initial legislative response of the Australian Capital Territory differed from that of other jurisdictions. For example, it did not introduce caps on general damages and only introduced thresholds before general damages apply with respect to medical practitioners. This is because it considered that it did not face a claims explosion and that minimal reforms were necessary. NEW SOUTH WALES The New South Wales Motor Accidents (Lifetime Care and Support) Act 2006 established the Lifetime Care and Support Authority to provide lifetime care and support for catastrophically injured victims of motor accidents. This is a no fault scheme funded through a levy on compulsory third party insurance premiums. The New South Wales Department of Health has also introduced an open disclosure policy for all medical procedures undertaken in public hospitals. This provides a process where staff can advise patients whenever there is an adverse incident. It expects that open disclosure will improve the claims process and provide better outcomes for hospitals, staff and patients. The Civil Liability Amendment (Offender Damages) Act 2004 defines when damages can be paid to an offender in custody, when the offender is injured or killed due to the negligence of a protected defendant. No damages are payable unless there is a permanent impairment of greater than 15 per cent. The Civil Liability Amendment (Offender Damages) Act 2005 included the authority to deduct from offender damages restitutions payable under the Victims Support and Rehabilitation Act 1996. On a similar theme, the Civil Liability Amendment (Offender Damages Trust Fund) Act 2005 provided for the satisfaction of personal injury damages claims by victims of crime from certain damages awarded to offenders. This included the ability to access offenders funds held in trust to pay to victims of crime. NORTHERN TERRITORY The Northern Territory awaits the final report from the Tort Law Reform Committee established by its Attorney-General in 2004. It intends to consider legislation along the lines of the civil liability legislation enacted elsewhere in Australia. Page 50
QUEENSLAND In Queensland, the Civil Liability (Dust Diseases) and Other Legislation Amendment Act 2005 amended the Succession Act 1981 and the Limitation of Actions Act 1974 to: allow for awards of general damages to be made where the plaintiff dies prior to final determination of the claim; and clarify the point in time at which knowledge of the nature and extent of a personal injury will constitute a material fact of a decisive character for the purposes of extending a limitation period for the claim. SOUTH AUSTRALIA South Australia s Dust Diseases Act 2005 has the object of ensuring that residents of South Australia who claim rights of action for, or in relation to, dust diseases have access to procedures that are expeditious and unencumbered by unnecessary formalities of an evidentiary or procedural kind. The South Australian Parliament Economic and Finance Committee reviewed the impact of the legislative reforms in the Recreational Services (Limitation of Liability) Act 2002 and the Wrongs (Liability and Damages for Personal Injury) Amendment Act 2002. The review was to assess the impact of these reforms on the availability and cost of public liability insurance. The committee tabled its report on 1 December 2005. One of its recommendations was for the South Australian Treasurer to work with a number of government departments to review the approach to insurance arrangements imposed on community organisations. This review is currently underway. The Law Reform (Ipp Recommendations) Act 2004 requires the South Australian Parliament Economic and Finance Committee to review the tort law reforms three years after the commencement of the Act. TASMANIA The Tasmanian Administration and Probate Amendment Act 2005, which commenced on 15 December 2005, amended the Administration and Probate Act 1935 to allow for the survival of general damages where the plaintiff dies of a dust-related condition after commencing legal action based on that condition, but prior to the legal resolution of the claim. Page 51
VICTORIA The Victorian Government worked closely with the Municipal Association of Victoria, Our Community and Jardine Lloyd Thompson to develop the Community Insurance Scheme. This scheme provided affordable and effective public liability insurance to the majority of Victorian not-for-profit community organisations, and provided premium reductions to close to 1,000 community groups (see the section on public liability insurance for not-for-profit organisations in the next chapter). The Victorian Department of Treasury and Finance provided public liability insurance information and support to over 800 organisations and individuals to assist them with obtaining commercial insurance while Victoria implemented the legislative reforms. The Victorian Government, through the Community Support Fund, provided funding to a consortium of peak groups to develop risk mitigation initiatives targeting public liability insurance premiums. This included developing information such as fact sheets and education packages and establishing an insurance hotline and assistance service. Victoria s Wrongs (Part VB) (Dust and Tobacco-Related Claims) Regulations 2006 excluded awards of damages for dust and tobacco-related disease from the operation of Part VB of its Wrongs Act 1958. WESTERN AUSTRALIA Western Australia amended the Insurance Commission of Western Australia Act 1986 to allow the commission to offer insurance cover to not-for-profit community groups, due to the commission s status as a government body with expertise in the insurance industry. In addition, the Western Australian Local Government Association made public liability insurance available to community groups through its Local Government Insurance Services operations. In May 2006, Western Australia passed legislation to align the economic loss caps applicable under motor vehicle third party insurance laws with those in its Civil Liability Act 2002 that is, three times the average weekly earnings at date of award for all motor vehicle personal injury claims arising under the Motor Vehicle (Third Party Insurance) Act 1943. Western Australia set a new, lower, threshold on the professional indemnity insurance cover required to tender for government contracts, in August 2006. Suppliers were required to have professional indemnity insurance cover of not less than $5 million for any one occurrence. Because of the difficulty and cost to small business of getting this level of cover, Western Australia reduced this requirement. It now requires that suppliers have at least $1 million worth of professional indemnity insurance cover, where appropriate. Page 52
The Insurance Commission of Western Australia has made a risk management programme available to small businesses and community groups to help them to better identify and manage risks associated with their activities. 2 2 Available from the Insurance Commission of Western Australia at <http://www.icwa.wa.gov.au/cifund/cif_risk_mgt.shtml> at 23 November 2006. Page 53